Accountants Produce Wish List For Singapore's 2010 Budget

by Mary Swire, Tax-News.com, Hong Kong

29 January 2010

Tax partners from Ernst and Young, a leading firm of accountants, have issued their wish list for Singapore’s 2010 budget, which is due to be announced in February. They discuss how the government could take the opportunity, after the country’s exit from the economic recession, to lay the foundation for future growth using additional tax measures.

In their release, they agree with the Singapore government’s indicated future focus on moving away from the broad-based measures that were necessary during the recession, towards policies particularly aimed at sustainable growth in the economy.

First, it was emphasized that corporate taxes should be kept competitive so that businesses can maximize their after-tax profits, and they “believe the headline corporate tax at 17% is very competitive, given that it is already one of the lowest in the region.”

However, they also believe that “there is still room to narrow the gap between the top personal tax rate of 20% and the corporate tax rate of 17%. An eventual harmonization of the top personal and corporate tax rates will give Singapore a competitive advantage in attracting and retaining foreign talent.” It would also provide “greater flexibility for individuals in business in determining their business structure.”

They also suggest that the government could now implement a pay-as-you-earn income tax scheme, rather than taxes being paid on previous year’s income, as at present. Such a scheme “would not only better match income with taxes,” they say, but “would also act as an economic stabilizer to the economy by smoothing out cyclical swings.”

In addition, as part of a list of measures “to encourage start-ups and foster entrepreneurship,” they include a “hope that the government will provide a tax deduction on pre-commencement costs incurred in the first six months prior to the date when the income is derived.” They also suggest changes to goods and services tax treatment for corporate expenses and a broadening of the definition of tax–deductible borrowing costs.

Finally, to demonstrate Singapore’s commitment to a low carbon economy, “the government could consider tax allowances or incentives to encourage businesses to consume energy from renewable sources” and “adopt technologies which will promote energy and water usage efficiency.”

They suggest “an investment allowance of say 130% for businesses which replace non-energy efficient equipment with energy-saving ones.” Tax incentives could also be linked to energy-efficient buildings by, for example, corporate tax reductions for a part of rental income, or by property tax rebates.

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